China Extracting Commercially Viable Natural Gas From Deeper Shale Formations – Analysis

China is a major natural gas importer by pipeline and the world’slargest importer of liquefied natural gas(LNG). In the last 10 years, the Chinese government hasactively supported the development of unconventional natural gas resourcesto reduce import dependence and enhance energy security.

According to a report from S&P Global Commodity Insights (SPGCI), the China National Petroleum Corporation (CNPC) in 2023 produced natural gas from shale in the Low Cambrian formation in the Sichuan Basin at a depth exceeding 14,760 feet, marking the first time that commercially viable natural gas was produced from this deeper formation. SPGCI reported that theZi 201 wellinitially produced 26.1 million cubic feet per day (MMcf/d), a commercial rate that could signify the entry of the Cambrian formation into a new phase of large-scale shale gas development.

Currently, only two of China’s national oil companies—CNPC and the China Petroleum and Chemical Corporation (Sinopec)—produce shale gas, mainly from the existing fields in theSilurian Longmaxi formationof the Sichuan Basin. At anaverage depth of 11,500 feet, the Silurian Longmaxi shale formation is shallower than the Low Cambrian.

China’s domestic shale gas production averaged 2.51 billion cubic feet per day (Bcf/d) in 2023, up from 0.02 Bcf/d in 2013, according to data compiled by SPGCI. Since 2013, Chinese companies have gained a greater geological understanding of shale formations and deployed more advanced hydraulic and automation techniques, steadily growing shale gas production. However, we estimate that shale gas accounted for just 12% of China’s domestic natural gas production of21.7 Bcf/din 2023 as geological and cost issues have hampered more rapid development. In 2023, China’s natural gas imports averaged16.0 Bcf/dand accounted for 42% of China’s total natural gas supply, compared with 15% of its supply in 2010.

In 2018, the Chinese Ministry of Finance and the State Administration of Taxation introduced a preferential tax policy to reduce the resource tax on shale gas production to 4.2% from 6.0%. Last year, this policy was extended through December 2027.

Following the release of China’s 14th Five-Year Plan in 2021, policy directives continued tosupport development of unconventional natural gas resources. Production from unconventional formations, such as tight gas, shale gas, and coal-bed methane in China averaged8.6 Bcf/din 2023.

Currently, China is one of four countries in the world where commercial volumes of shale gas are being produced. The others arethe United States,Canada, andArgentina. OurWorld Shale Resource Assessmentsreport of 2015estimated 1,115 trillion cubic feet of technically recoverable shale gas resources from the seven most prospective of China's natural gas basins. More than half of these resources are in the Sichuan Basin (626 trillion cubic feet). The southwest region of the Sichuan Basin dominates China’s shale leasing and drilling activity because it offers China’s best combination of favorable geology, flat surface conditions for accessibility, existing pipelines, abundant water supplies, and access to major urban natural gas markets. Other parts of the Sichuan Basin are structurally or topographically complex or have elevated hydrogen sulfide (H₂S) contamination that makes commercial shale gas development more challenging.

• Principal contributors: Faouzi Aloulou, Victoria Zaretskaya
• Source: This article was published by AIE